Posted on 02/04/2016 6:18:16 AM PST by Kaslin
One of Donald Trump's talking points and biggest applause lines is how "they" -- Japan, China and Mexico -- are "beating us in trade" and are "taking our jobs." He proposes tariffs, for example, on Chinese goods in retaliation for that country's alleged "cheating."
To someone who is out of work in an industry where foreign workers do what he or she once did, Trump-like protectionism sounds appealing. But Trump actually proposes punishing the American consumer. As economist Milton Friedman says, protectionism discriminates against low prices.
It is certainly true that many countries prop up or subsidize companies or even whole industries by providing capital or special privileges. This allows them to produce goods and services "below cost" -- or at prices below what a competitor could charge and still make a profit. But doing so also means that taxes in that country, which could have gone to a more productive use, are squandered to keep a company in business that otherwise wouldn't exist or would have gone out of business. This means consumers in other countries with which the "cheater" country trades can buy those imported goods at a cheaper price.
Trump proposes to retaliate by placing tariffs on those imported goods. But this prevents American consumers from benefitting from the "cheater" country's folly of propping up companies that would not survive but for the taxes spent to keep it alive. Why compound the stupidity?
Another justification for this kind of protectionism is that a foreign country "exploits" America through the use of "slave labor" which, as to wages, causes a "race to the bottom." Certainly forced labor, as when "blood diamonds" are mined by workers with guns pointed to their heads, is criminal and immoral. But free laborers offering to work for less money than others is how poor countries become wealthier -- by allowing other countries to buy goods more cheaply.
NAFTA, the North American Free Trade Agreement, established in 1994, has become exhibit A on how "we lose" on trade. After all, many American jobs have been "outsourced" to Mexico. But that looks at but one side of the ledger. That an American pays less for certain things frees up capital to spend on something or on someone else. A machinist sees his job "shipped to Mexico," but the planner or analyst hired by a company with the "savings" might not see the direct relationship between free trade and the fact that he or she has this new job. When NAFTA was debated, businessman and presidential candidate Ross Perot predicted "a giant sucking sound" as jobs and incomes would be lost to Mexico.
The American Enterprise Institute writes: "It is an article of faith among protectionists that NAFTA harmed American workers. ... The justification may be that NAFTA went into force at the beginning of 1994 and the U.S. trade balance with Canada and Mexico, two of our top partners, then deteriorated.
"But the American job market improved as these trade deficits grew. Unemployment fell more than two points from the beginning of 1994 through the middle of 2000. Already high labor force participation edged higher to its all-time record by early 2000. Manufacturing employment rose until mid-1998 and was above its pre-NAFTA level until April 2001. Manufacturing wages rose. The strength in the American job market from 1994 to 1999 is not due primarily to NAFTA, but it is plain that the job market, including manufacturing, strengthened after NAFTA."
Trump is also schizophrenic on this issue. On the one hand, he opposes illegal immigration, which most often is an economic decision where, for example, a poor, unskilled worker from Mexico sneaks into America to make money. On the other hand, Trump deems it unfair and a form of "cheating" if an American company relocates to or builds a factory in Mexico to take advantage of that unskilled Mexican worker's willingness to work for less.
If Trump were talking about the excessive taxes or regulations that induce American companies to leave the U.S. or to put factories in foreign countries, that would be one thing. The U.S. general top marginal corporate income tax rate is the highest in the industrialized world -- and, worldwide, is only exceeded by Chad and the United Arab Emirates. Unnecessary regulations also increase the cost of doing business stateside. But this is not Trump's argument.
About free trade, the father of modern economics, Adam Smith, in 1776 wrote in "The Wealth of Nations": "In every country it always is and must be in the interest of the great body of the people to buy whatever they want of those who sell it cheapest. The proposition is so very manifest that it seems ridiculous to take any pains to prove it; nor could it ever have been called in question had not the interested sophistry of merchants and manufacturers confounded the common sense of mankind. Their interest is, in this respect, directly opposite to that of the great body of the people."
Trump means well. But so what?
That is often not the case.
“Not that anyone cares anymore, but Obama signed the TPP yesterday.
Thanks to all who contributed to that.”
I cared and am horrified that we would do that to ourselves...... the rest of my thoughts on this are not fit for print!
And once they do you now have an opening to really go after them.
Kind of like football.
Your statement worrying about "retaliation" is like saying let's NOT score a touchdown. We're liable to provoke THEIR defense to get angry and play harder.
Largely forgotten immediate aftermath. Destroy the Mexican agricultural economy to get that cheap labor pool in place.
holy crap.. and don’t try to send booze to Canada. they will snatch it up and be sippin by 5
“If Trump were talking about the excessive taxes or regulations that induce American companies to leave the U.S. or to put factories in foreign countries, that would be one thing.”
Well, he does.
Or we put a tariff on EVERYBODY and guess what? American companies get ramped up with robotic assembly lines which give jobs to a few thousand robot repairmen, period, end of story.
After all the damage of a trade war.
Freepers who clearly understand that you can't just pay burger flippers $15 an hour don't seem to get it that the days of millions of American men standing on the line, bolting together washing machines, or snapping tubes into TV chassis, are over. Over.
We need to figure out how to make an economy work under that reality.
So, we are schooled in free trade by a blogger and talk show host?
“But Trump actually proposes punishing the American consumer. As economist Milton Friedman says, protectionism discriminates against low prices.”
I have had a habit for a long time of looking to see where something is made before I buy it.
The other day I was in Lowes and bought a wrench that I thought I would need. Its label signified an American company, said it was a hundred year old company.
The wrench was of good quality because it was an American design. It was manufactured in China. Most of the things we buy, consumer goods, are made in China. These items are built by low wage workers but, on the whole, the savings are not passed on to the consumer.
The only thing I have noticed that is are air conditioners, for some reason.
But if the savings really were passed along, what good does it do to have cheaper goods if you have no job and no money to buy them with?
The United States became an economic powerhouse and it was not by using the latest version of “free trade”.
I heard an old economist say many years ago, when you buy a product made overseas, the money and the job go overseas.
Try as they might, proponents of “free trade” can not over rule that economic law.
Manufactures go to Asia for the slave labor, every other “reason” is BS cover for anti American trade agreements.
Tariffs worked well for our country for 180 years.
Our founding fathers viewed tariffs as a tax on foreigners wanting to sell into our markets.
And while a case can be made for trade via comparative advantatge, no case can be made for trade deals where countries like China sell to us, but buy little in return except for our equities and debt.
“Lower taxes in the US and eliminate regulation that forced the jobs overseas in the first place would be better.”
Would help of course, but the much lower labor costs would not be overcome by just that.
Those "free trade" agreements aren't free trade.
Everything is changed from here on out.
Jeff Sessions, reported that. Did anyone else? LOL
"Free trade", as has been practiced over the past quarter century, means U.S.-based manufacturers are structurally disadvantaged, by design. That is the opposite of what free trade is supposed to be, and that is what needs to and change and will change under a Trump administration.
We have to ask why China has underbid, and it isn’t just wages. It’s because they have volunteered to be virtually the pollution capital of the world, and there is next to nothing in overhead as well.
Dollars and cents reduce all these complex considerations to one dimension.
An approach that tried to get US business more viable would work better than one that forbade China trade. But if a great wall of taxes against China must be raised, at least it should be kept tax rate neutral by cutting other taxes... don’t use this as an excuse to put a new tax on the books while not calling it one.
Maybe in the end this will be a bargaining chip. If China wants to be global then it can’t just buy away the world with its cheap labor, it is expected to participate in world commerce too.
We have a net trade deficit of $500 billion annually. The Chinese would be the bigger loser if they retaliated. And exports play a much larger role in their economy.
The Chinese are not playing fair. They make it difficult for our products to penetrate their market; they manipulate their currency; and they steal our intellectual property.
Yes we need to make our business environment more friendly, but we need to use our leverage advantage to level the playing field.
A wise policy approach will bring everything on the table. It’s not as simple as a unilateral slap.
At the same time, we really need a more diplomatic Donald if he turns out to make the presidency and we expect that the world is going to play along with us. Dish out vinegar, get vinegar in return. Pitch a sweet deal, and you might well get a sweet deal back.
Tariffs are simply a tax on a large group of Americans which subsidize economic benefits for another group of Americans.
[Tariffs are the wrong answer, the Chinese will retaliate.
Lower taxes in the US and eliminate regulation that forced the jobs overseas in the first place would be better.]
Tariffs are a great foundation to start the slowdown of manufactured products from China. Yes, it will cause prices to rise, causing consumer pain and frustration in the wallet, and waking up companies to focus their manufacturing operations in the US.
Hopefully Trump can pair this with the low tax rates that would benefit such manufacturing expansion and relocation back to the US.
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